The establishment survey showed the economy losing
17,000 jobs in January, the first reported job decline since August of 2003.
Over the last three months, the economy has added a total of 125,000 jobs, with
the private sector adding just 99,000 jobs. The household survey showed little
change in the unemployment rate, although it rounded down to 4.9 percent for
January compared to 5.0 percent in December.

The job loss in the establishment survey was driven by losses of 28,000 jobs in
manufacturing, 27,000 jobs in construction and 26,000 state government education
jobs. The latter is likely due to a faulty seasonal adjustment and will probably
be reversed in future months, but the declining employment in construction and
manufacturing is very real.

Residential construction has lost 189,300 jobs since July, 5.8 percent of
employment in the sector. Employment in the non-residential sector has also been
drifting downward in the last three months, indicating that the boom in this
sector is over. ...

There were few sectors showing notable job gains in January. The two exceptions
were health care and restaurants. The health care sector added 27,100 jobs,
while the restaurant sector added 14,800 jobs. Over the last three months, these
two sectors together have added 130,100 jobs, an amount equal to 131.4 percent
of the job growth in the private sector as a whole.

The data in the household survey largely reinforce the picture of a weak labor
market. There was little change in unemployment rates for most demographic
groups, although the January data indicate that a reported jump in December in
the unemployment rate for black teens was not a fluke. The January data show a
black teen unemployment rate of 35.7 percent. This is up from a 27.9 percent
rate reported for October.

The number of people involuntarily working part-time rose again, hitting the
highest level since October of 2004. The average and median duration of
employment spells both increased, as did the percentage of the long-term
unemployed. The number of discouraged workers also showed a year over year
increase, continuing the recent pattern.

By age, employment growth continues to be heavily skewed toward older
workers, with people over age 65 showing an employment gain of 287,000 jobs,
while employment dropped by 250,000 for other age groups. ...

This employment report should be sufficient to remove any doubt that the economy
is in very serious trouble and most likely has already entered a downturn. In
addition to the loss of jobs, there was also a reported decline of 0.1 hours in
the average workweek, leading to a decline of 0.3 in the index of aggregate
weekly hours. The decline in hours worked, which showed up most clearly in
non-durable manufacturing, suggest that more layoffs are on the way. In
addition, wage growth has slowed to crawl, averaging just 2.3 percent over the
last quarter. This is well below the rate of inflation.

It is also important to remember that the birth/death imputation is likely
overstating the number of jobs created in new firms. The revision for last year
lowered total employment by 376,000 or 31,000 per month. It is likely that the
current data will be revised downward by a comparable amount. In short, the
picture is probably even worse than the data now show.

Paul Krugman:

The insignificance of zero, by Paul Krugman: So the new labor report is out,
and it says that nonfarm payrolls actually fell last month. On the other hand,
employment growth for December was revised up. You shouldn’t take any of this
seriously. For one thing, seasonality is a big problem. There’s normally an
employment bulge in December, as stores and others bulk up for the holiday, then
a slump in January as they let the extra workers go. The BLS tries to adjust for
these seasonal patterns, but because the pattern is always changing, it’s an
imperfect process. A better guide is probably to average the last 2 or 3 months.
What you get then is that employment is still growing, but v-e-r-y s-l-o-w-l-y.
In particular, employment growth is well short of what’s necessary to keep up
with population growth. So even though it’s premature to say that jobs are
shrinking, as a practical matter this makes no difference: the truth is that the
jobs picture looks moderately dire.

Of course, the 17,000 drop in nonfarm payroll employment is the most
eye-catching aspect. The weakness in the payroll survey was corroborated by a
decline in the average work week, to 33.7 hours from 33.8 in December, and a
slowing in hourly wage gains, to 0.2% from 0.4%.

But the separate household survey showed a whopping increase in employment of
635,000, when new updated population controls are applied to both the December
and January data. ...

In December, just the opposite occurred: nonfarm payrolls rose a respectable
82,000, upwardly revised from the initial estimate of just 18,000. But that
month, household employment plunged 436,000.

The household survey’s signal of strength was ratified by the unemployment
rate, which dropped to 4.93% from 4.98%. The employment to population ratio
jumped to 62.9% from 62.7%. These ratios are more reliable than the absolute
numbers for employment and unemployment which are whipped around by the small
sample size; they suggests a marginal improvement in the labor force.

It would be easier to draw conclusions if other data were pointing
universally in one direction or another. But they’re not. Unemployment claims
pointed to strength during January, until the last week, when they pointed to
sudden weakness. The ADP payroll report pointed to remarkable strength. But
regional purchasing manager surveys pointed to weakness. (We’ll get a broader
look with the national ISM index due out at 10 a.m.)

Meanwhile, revisions to the payroll survey continue to make the report
difficult to read. The Labor Department revised up their estimate of December
job creation by 64,000 jobs to 82,000 and revised down their November estimate
by almost half, to just 60,000 jobs created that month. And there were a whole
slew of so-called “benchmark” revisions showing the total seasonally-adjusted
level of nonfarm employment in December 2007 was 376,000 lower than first
thought...

Plus, this isn’t the first time the government has reported a negative
monthly number. Their initial estimate of August job creation, released in early
September, saw overall employment drop by 4,000 jobs. Coming as it did on the
heels of the August credit crunch, the Wall Street Journal reported that “The
jobs report stoked fears of recession, sending shockwaves through financial
markets.”

That number was subsequently revised to show a gain of 89,000 for the month
of August.

Fast-forward to today, and it’s clear the labor market is softening. But it’s
also clear the monthly jobs data should be taken with a grain of salt.

The establishment survey showed the economy losing
17,000 jobs in January, the first reported job decline since August of 2003.
Over the last three months, the economy has added a total of 125,000 jobs, with
the private sector adding just 99,000 jobs. The household survey showed little
change in the unemployment rate, although it rounded down to 4.9 percent for
January compared to 5.0 percent in December.

The job loss in the establishment survey was driven by losses of 28,000 jobs in
manufacturing, 27,000 jobs in construction and 26,000 state government education
jobs. The latter is likely due to a faulty seasonal adjustment and will probably
be reversed in future months, but the declining employment in construction and
manufacturing is very real.